LLP ACT

Hi Chetna, these are great questions on LLP Act, 2008! Let me address each one carefully:

1) Why is it mandatory to have an LLP Agreement despite Schedule 1? Why not more leniency like Partnership?

• Schedule 1 of LLP Act 2008 provides default rules applicable to LLPs if there is no agreement between partners.

• However, these default provisions are quite basic and may not suit all LLPs' specific requirements.

• An LLP Agreement is mandated to:

  • Customize rights, duties, profit-sharing, governance, and exit arrangements.

  • Avoid disputes by clearly defining partners’ roles and responsibilities.

  • Comply with statutory requirements and provide legal certainty.

• Unlike a traditional partnership which can be formed with an oral or implied agreement, an LLP is a registered legal entity requiring formal documentation for transparency and governance.

• Hence, while Schedule 1 can apply in absence of an agreement, formulating a proper LLP Agreement is strongly recommended and effectively mandatory for smooth functioning and legal protection.

2) Are all Designated Partners also partners of the LLP? In case of an LLP made by a body corporate, do nominees become partners?

• Yes, all designated partners are also partners of the LLP.

• In LLPs, partners and designated partners are generally the same persons, except designated partners have additional legal duties.

• When an LLP is incorporated with a body corporate as a partner, the LLP Agreement or the body corporate will nominate individuals (nominee partners).

• These nominee individuals act as designated partners and also partners on behalf of the body corporate.

• So, nominee directors of the body corporate appointed as designated partners are partners of the LLP in their individual capacity or as nominees, depending on the LLP Agreement.

• The LLP Act requires at least two designated partners who are individuals; body corporates themselves cannot be designated partners.

3) Regarding Section 24(6) of LLP Act - can capital and accumulated profits be claimed only on death/insolvency, or also on voluntary retirement?

• Section 24 deals with extinction or cessation of partnership and payment of capital/accumulated profits to outgoing partners.

• Subsection (6) specifically refers to payment on death or insolvency of a partner.

• However, voluntary retirement or expulsion is covered under other subsections (like subsection 5 or provisions in LLP Agreement).

• Typically, a retiring partner can claim their capital contribution and share of accumulated profits, but this is governed by:

  • The LLP Agreement terms.

  • Provisions under Section 24 and other relevant provisions about settlement of accounts.

• If the LLP Agreement is silent, the default rules under Section 24 would apply, and claims can be made on retirement.

• So, it is indeed possible for a partner who voluntarily retires to claim their capital and accumulated profits, subject to LLP Agreement and law.

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